Angel Screening and Valuation Worksheet
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Rose bapp01.tex V1 - 02/13/2014 4:15pm Page 211 A Angel Screening and Valuation Worksheet Company ______________________________ Date ____________ Weighted Factors and Issues Relevant to the Viability of Ranking Pre-Revenue Start-Up Companies for Angel Funding 0–30% Strength of the Management Team (x3) Impact Founder’s business experience +++ Experience as a CEO ++ As a COO, CTO, CFO + As a product manager 0 Many year’s business experience −− Sales person or technologist only −−− Straight out of school Impact Founder’s domain experience ++ Successful experience in this space + Experience in directly analagous space − New entrant to this space (continued) 211 Rose bapp01.tex V1 - 02/13/2014 4:15pm Page 212 212 APPENDIX A Weighted Factors and Issues Relevant to the Viability of Ranking Pre-Revenue Start-Up Companies for Angel Funding (continued) Impact Willingness to step aside, if necessary, for a new CEO ++ Willing + Somewhat willing 0 Neutral −− Somewhat unwilling −−− Unwilling Impact Is the founder coachable? + Yes −−− No Impact How complete is the management team +++ A complete and experienced management team + Rather complete team 0 Good start − Somewhat incomplete −− Very incomplete 0–15% Size of the Opportunity (x3) Impact Size of the specific market for the company’s product or service ++ >$500,000,000 + >$100,000,000 − >$50,000,000 −− <$50,000,000 Impact Potential for revenues in five years ++ >$100,000,000 + >$50,000,000 − <$25,000,000 Impact Strength of competition in this marketplace + Weak 0 Modest (or none) − Strong Rose bapp01.tex V1 - 02/13/2014 4:15pm Page 213 Angel Screening and Valuation Worksheet 213 Weighted Factors and Issues Relevant to the Viability of Ranking Pre-Revenue Start-Up Companies for Angel Funding (continued) 0–15% Product or Service (x3) Impact How well is the product/market defined? + Clear, focused and succinct 0 Some definition, needs focus −− Poorly defined Impact Is the product/service compelling? + Product is a pain-killer with no side effects 0 Product is a pain-killer − Produt is a vitamin Impact What is the path to product acceptance? + Product is an easily understood and adopted improvement 0 Product is an innovative approach to a known market − Product defines a new industry or category Impact Can product/service be easily copied? ++ Solid, issued patent protection + Product is unique and protected by trade secrets − Duplicated or replaced with difficulty −− Easily copied 0–10% Impact Sales Channels (x5) ++ Channels established and moving product + Initial channels verified 0 Narrowed to one or two channels −− Channel strategy not yet established 0–10% Impact Stage of Business (x5) ++ Customers generating significant revenue + Positive, verifiable acceptance by beta sites 0 Product ready to market − Product in prototype −− Only have a plan (continued) Rose bapp01.tex V1 - 02/13/2014 4:15pm Page 214 214 APPENDIX A Weighted Factors and Issues Relevant to the Viability of Ranking Pre-Revenue Start-Up Companies for Angel Funding (continued) 0–5% Impact Size of This Investment Round (x5) + $250,000 to $750,000 0 $750,000 to $1,500,000 −− Over $1,500,000 0–5% Impact Need for Subsequent Funding (x5) + None 0 Less than $2,000,000 −− Over $10,000,000 0–5% Impact Quality of Business Plan and Presentation (x5) + Excellent 0 OK −−− Poor 0–2.5% Impact Location of znusiness (x2.5) + Within driving distance 0 Within the same country −− Elsewhere 0–2.5% Impact Type of Industry (x2.5) + Meets investor’s specific thesis 0 Scalabe consumer or B-to-B − Capital intensive Raw Intangible Final Score (±25%) Score Rose bapp02.tex V1 - 02/11/2014 8:14pm Page 215 B Angel Investment Due Diligence Checklist Internal Due Diligence Checklist Investor Analysis Company Overview Team Member Responsible ▪ Articulate the “equity story” here (i.e., why the company is on to something and why its stock will appreciate greatly). Is it compelling? ▪ Does the company engage in thorough business planning? ▪ Does management have a clear understanding of the challenges it faces and a realistic plan to address them? ▪ Are there any skeletons in the company’s closet from previous activities (e.g. outstanding liabilities, unassigned IP)? (continued) 215 Rose bapp02.tex V1 - 02/11/2014 8:14pm Page 216 216 APPENDIX B Management Team Team Member Responsible ▪ Are all resumes and personal references available? ▪ What key strengths does the management team have collectively and individually? ▪ What holes are there in the team and how/when might they be filled? ▪ Have there been any disgruntled employees and, if so, why? Do these employees cause any tangible risk going forward? ▪ What strengths does the Board bring to the company? How might it be augmented? ▪ Is there a Board of Advisors, and, if so, how active is it? Marketing Team Member Responsible ▪ Does the company have a well-defined sense of what its true market is? ▪ Is this market sufficiently large and fast-growing to be attractive? ▪ Is the company’s market generalized or niche? ▪ If generalized, does the company stand out from competitors? ▪ If niche, will the company dominate sufficiently to either build attractive cash flow or be bought by a larger firm? ▪ Is the company the leading firm in its market? Market share? ▪ What barriers to entry does the company enjoy? How long-lasting are they? Rose bapp02.tex V1 - 02/11/2014 8:14pm Page 217 Angel Investment Due Diligence Checklist 217 Marketing Team Member Responsible ▪ Does management understand the key metrics to measure its business and does it track its progress effectively? How do the metrics compare to similar firms? ▪ Does the company have a sensible business model? Sales Team Member Responsible ▪ Do customer reference calls bear out claims management make about demand for their products/services? ▪ Is the company pipeline attractive? What is the probability that it will hit its targets? ▪ Does the sales strategy make sense? What could be done to improve it? ▪ Can the company acquire customers profitably? ▪ Is the company’s sales cycle better or worse than its competitors and is it attractive? Competition Team Member Responsible ▪ Does the company know who its competitors are, including indirect competitors? ▪ Where does the company stack up versus competitors? Can it win business from them? ▪ Has the company focused its business plan narrowly enough to limit its competition? ▪ How well-funded is the competition? (continued) Rose bapp02.tex V1 - 02/11/2014 8:14pm Page 218 218 APPENDIX B Product Development Team Member Responsible ▪ Is the product a need-to-have, a nice-to-have, or a luxury? Does it solve a critical problem or enable growth (if B2B)/provide entertainment (if B2C)? ▪ Describe the customer demand in detail. ▪ Has the company proven adept at product development? Does it have an adequate technical team? ▪ Did product development flow from perceived (or, better yet, researched) customer demand or from some other impetus? Explain. Intellectual Property Team Member Responsible ▪ Does the company have an appropriate IP strategy? Explain. ▪ Are there any issues relating to patents or intellectual property? Production/Operations (HR, Team Member Responsible Customer Support, Fulfillment, Returns, Distribution Logistics) ▪ Do the management team and other employees enjoy appropriate incentives to run the company for the long term? ▪ Are the interests of management aligned with ours? ▪ Are total labor costs appropriate? ▪ Does the company have a realistic plan for managing its back office and customer support? Will it be able to handle customer growth while maintaining customer satisfaction? Rose bapp02.tex V1 - 02/11/2014 8:14pm Page 219 Angel Investment Due Diligence Checklist 219 Financing Strategy Team Member Responsible ▪ Is the valuation attractive? What is the projected times money returned and IRR (if calculable)? Is the risk-adjusted return attractive? ▪ Does the company have a thorough plan as to what it will do with our money? Is it sensible? ▪ Is the company raising the right amount of money? ▪ What financing risk exists in the business plan? How much additional money must they raise and how flexible (in amount and timing) can they be in raising it? Financials Team Member Responsible ▪ Does the company have a realistic set of projections based on reasonable assumptions? ▪ Are the projections bottom-up (good) or top-down (not so good)? ▪ Does the company have good operating leverage? ▪ Are the margins attractive (absolutely and relative to competitors)? ▪ Has the company met, exceeded, or fallen short of its previous budgets? Analyze variances. Assets and Property Team Member Responsible ▪ Are there any issues here? (continued) Rose bapp02.tex V1 - 02/11/2014 8:14pm Page 220 220 APPENDIX B Customer References Team Member Responsible ▪ Write up summary of reference calls. ▪ Do customer reference calls bear out claims management make about demand for their products/services? ▪ Are there any issues flagged by customers? Does management recognize and admit to (without prompting) these issues? Contracts and Agreements Team Member Responsible ▪ Review all contracts with legal counsel and flag any issues, risks, or omissions. Corporate Documents Team Member Responsible ▪ Review all corporate documents with legal counsel and flag any issues, risks or omissions. Taxes Team Member Responsible ▪ Review company tax situation and analyze effects on cash flow over next several years. Insurance Team Member Responsible ▪ Assess adequacy of insurance coverage and analyze risk to investment thesis of any insurance gaps. Rose bapp03.tex V1 - 02/11/2014 8:15pm Page 221 C Gust Convertible Note Term Sheet TERMS FOR CONVERTIBLE NOTE BRIDGE FINANCING OF NEWCO, INC. _______, 20__ The following is a summary of the principal terms with respect to the proposed Convertible Note Financing of NewCo, Inc., a Delaware cor- poration (the “Company”). Except for the sections entitled “Expenses” and “No Shop/Confidentiality”, such summary of terms does not con- stitute a legally binding obligation.